Baltimore Area Leaders Sound Off on Startup Scene

This post started out as a reaction to yesterday’s post by Matt Mireles in New York City about the dearth of talent available to startups there. I felt it was relevant to the Baltimore/Washington area and shared it with some of our local leaders. It sparked a deep conversation — which I captured below.

Dave Troy to some area investors, entrepreneurs, and economic development officials:

This blog post out of NYC is a decent analysis of the problems that east-coast tech startups face.

  • Drop in “federal sector” in place of “Wall Street” and you have an almost perfect analysis of our situation here in Maryland.
  • Scarce technical talent wants to be employees, not co-founders for equity.
  • A large well-funded ecosystem that sucks up available talent (Wall St, Feds, etc)
  • Universities are barely aware of the startup ecosystem and do not contribute a good supply of talent

As the guy points out, a few good exits and some Stanford-like thinking can quickly change things. Tomorrow he’s writing some about how the NYC community is addressing this problem.

Roger London (investor, director of America’s Security Challenge):

I agree for the most part. I would tweak it as follows (comments embedded below).

1. Scarce technical talent wants to be employees, not co-founders for equity.
Totally agree, however technical talent in this region is not nearly as sophisticated and picky as the Palo Alto engineer sited in the blog. While most technical talent here would not take equity or options in lieu of a paycheck, I believe there are many that could find a suitable combination. This crop of “vested” technologists will anchor our next generation of technology entrepreneurs. They must first get a taste for the long-term value of equity and just as importantly realize a bit of a payoff so that a “paycheck” is no longer their motivation and requirement.

2. A large well-funded ecosystem that sucks up available talent (Wall St, Feds, etc)
I don’t think our technical talent goes to work for the feds, but they are hooked on the federal R&D heroin that so liberally “strings out” our technical talent making them addicted to and dependant on research funding, thereby unwilling to consider leaving the “shooting galleries” of the university and federal labs (got carried away with the drug metaphor). The feds could do a better job leveraging that investment by coordinating private sector collaboration, specifically startup collaboration with these technologists to open their eyes to the possibilities. In the absence of any progress there, we need to make a concerted effort to bring the eventual customers and serial angel entrepreneurs to the fed researchers to identify, shape and license technology that is desired by the market.

We need to find a more efficient way to produce more profitable and more successful startups. While mentoring, incubators and similar programs are valuable, the most effective way to increase the probability of success is to bring the customer to the startup table and have them help shape the requirements and solution. Who are the largest technology consumer enterprises in the state? State of MD government, Hopkins Healthcare Systems, Constellation Energy, T Rowe Price, Legg Mason, Lockheed, Fort Meade, Coventry, Marriott, Host, WR Grace, Catalyst, Discovery, Black and Decker, McCormick immediately come to mind. There are a number of technologies that most of these companies would want to procure because it improves their performance, customer service, security, bottom line, etc….things like high speed computing and distribution, more effective customer interaction tools, more effective customer security re their identify/information and customer logins, network security, building and vehicle fuel efficiency, etc.

Almost every agency and department of the federal government also has requirements for these and by establishing beachhead Maryland customers, we can stand up and provide credibility to young companies and then help springboard them into the federal government. With varying degrees of success, organizations already exist that follow this model but their efforts should be amplified.

3. Universities are barely aware of the startup ecosystem and do not contribute a good supply of talent
See above

As the guy points out, a few good exits and some Stanford-like thinking can quickly change things. Tomorrow he’s writing some about how the NYC community is addressing this problem.

NYC does not have the research funding that we have in the state and their solution might not be replicable here. Our ecosystem of capital, talent and customers is fairly unique which is another reason why we can’t just “copy” the innovation models from NYC, Boston/MIT, Silicon Valley, RTP or other innovation regions. The assets we have in this region that are not found anywhere else is the vast amount of federal R&D (#1) and the largest consumer of technology on the planet, the federal government. Unique programs need to be developed with those two factors deeply embedded that fosters emerging growth tech companies and helps to bridge the gap between research and market adoption. That work needs to be designed and operated by entrepreneurs and early stage investors. While collaboration with academia, federal and government stakeholders is important, their participation in the design and operations should be limited or we will get more of the same.

Bob Bloncheck, investor and serial entrepreneur:

My two cents:

I think we have the opposite problem as NYC. We have a lot of young techies trying to do start-ups in the region, and not enough of the non-technical entrepreneurs.

And when the experienced non-techies do give a start-up a try, they come at it from a professional services business model perspective, which is another side-effect of the government focus (indeed addiction, Roger) in the region.

Everything is driven by a time-and-materials mindset here that permeates not only government, but other big institutions as well, and contributes to the lower risk tolerance.

I just had another conversation with an entrepreneur last week who is considering abandoning a product approach and going to a services model. And it is because a large health care institution keeps telling him that they never would buy a product/technology from a young company. But they would do business with him on a services basis using his technology.

As many of us have learned the hard way, products and services are very different. And to the extent we are trying to foster a start-up ecosystem in the region focused on products, and not just more 3-10 person services spin-offs from other services businesses,
we need (as Roger said) unique programs that would encourage these large organizations to adopt products from local start-ups more readily (and not just technologies implemented using a services approach).

And we need the universities to start teaching more:

  • Product management (not just project management or business analysis – they are different)
  • Product marketing
  • Market focus (in addition to customer or sales focus)
  • Entrepreneurship

Business model is king, and it needs to be more than just billability, if we want a vibrant start-up culture in the region.

Mike Subelsky, entrepreneur and community leader:

Thanks for sending this Dave. I can only speak for my sector (consumer Internet), but this guy is DEAD ON. Maryland is awash in entrepreneurs with good (or good enough) business ideas, who are willing to take the big risks, but who just need someone who can build software who’s willing to take on some of that risk as well.

I know this empirically, because (due to my blogging about startups in Baltimore and due to Ignite), a lot of them end up emailing me asking for advice about how to find a decent programmer. I’ve had that conversation at least 10 times in the past 2 years. One of the most promising of these people actually just gave up and started teaching himself Rails so he could get his education software prototype out the door — when that guy starts looking for funding, if he even ends up needing it, look out!

My friend Gabe Weinberg, an entrepreneur in Philadelphia, had an interesting response (link).

I’m encouraged because we’ve been working on the kind of “drawing us out” he suggests for a few years now. But there’s a long way to go. Even just in my one little neighborhood, I’m still meeting very qualified technical people who have zero idea about the startup world in Baltimore. It’s not a matter of “do they prefer cash or equity” — it’s that they’ve never been offered and have no idea such a distinction might even be available.

Brad McDearman, Economic Alliance of Greater Baltimore:

We just took a group of 40 Baltimore business, government, education and non-profit leaders to Austin to see what we could learn from that market. We were hosted by the Greater Austin Chamber and the Lance Armstrong Foundation.

I think most participants from Baltimore would say two things stuck out related to how Austin deals with entrepreneurs…and the Austin people stressed these in their presentations to us:

  • Celebrate entrepreneurs and wealthy people. Make rock stars out of them…and make sure wealthy people in the community and the entrepreneurs are hooked up. Get the wealthy people to invest in the start-ups.
  • IC2 at the University of Texas – this is an institute at UT that stresses and supports entrepreneurship in the region and is what many point to as being the catalyst for driving the entrepreneurial culture in Austin. They put out white papers, provide support and networking for entrepreneurs…and connect people.

Many of us came away wondering how we make this happen in Baltimore. How can we get Hopkins to take a leadership role in Baltimore’s entrepreneurial and economic development efforts? JHU is a known entity and the folks in Austin kept talking about how lucky we are to have Hopkins given their research and world famous medical center (which Austin does not have). But JHU does not lead an economic development effort the way UT does.

They have created a culture in Austin related to entrepreneurship that even the corporate businesses respect and believe in…and it seems like they did it in a grassroots way (through the entrepreneurs themselves) and through the major institution (UT). But it doesn’t appear to have had much to do with the traditional business organizations (although the Austin Chamber does receive high praise for its broad impact and support).

Scott Paley, Baltimore entrepreneur, former New Yorker, to me:

Just from my own tiny perspective, this has long been a problem in NY. When I lived up there, I’d say I was contacted at least 5 times a year by non-technical startup founders asking me if I’d leave my own company to work with them as a technical founder. Even now I still get calls from non-techs asking if I know smart tech people in NYC.

Scott Paley to Roger London:

Hi Roger,

You wrote:

technical talent in this region is not nearly as sophisticated and picky as the Palo Alto engineer sited in the blog. While most technical talent here would not take equity or options in lieu of a paycheck, I believe there are many that could find a suitable combination.

I’m curious why you think this is the case (I’m not disputing the assertion – I don’t yet know enough about the local technical scene to be able to do that.) But, why should an engineer in Palo Alto be more sophisticated? Is it cultural? The experience of having gone through multiple startups, failures, and eventual successes? As a relatively recent “immigrant” to the Baltimore area (from NY), I’d like to try to understand the region better, so conversations like these are really helpful to me.

It does seem like in SV there is a general culture (or perhaps “badge of honor”) in starting a company, failing, starting another, and eventually hitting it big. In such a culture, people optimize for equity, but I’m not certain that should be characterized necessarily as “sophistication”. Could it be that, in general, technical talent in SV is younger and less established in the typical “traps” that make it hard for people to consider entrepreneurship? Failure is “easier” in a sense?

I can say from my own experience that the idea of failing was easier to contemplate when I was in my 20’s without a mortgage and kids than it would be today.

Of course, this seems line of thinking seems most relevant for first time entrepreneurs, which takes us back to fixing what Dave wrote in the first email:

Universities are barely aware of the startup ecosystem and do not contribute a good supply of talent.

Roger London to Scott Paley:

Scott- the article described the Palo Alto engineers thinking as “sophisticated”, not my words. I do think most of what you describe re multiple startup experience is true.

Experience gained over several startups for several years each likely puts that person around 30 years or older. I don’t think however you can replicate that experience (sophisticated thinking) by working with universities and getting a larger volume of people in their 20’s.

This region also has a lower tolerance for failure. Rather than throw young people to the wolves and try to make them entrepreneurs realizing in this region you cannot erase the black mark of a failed venture, we should make them entrepreneurs-in-training and help place them in a growing company where they can still earn a paycheck, but have some skin in the game while simultaneously experience but not be responsible for the critical elements of successful entrepreneurship…. how to acquire key initial customers, product development, building a team and staff, operational infrastructure, raising capital, etc.

Jared Goralnick, entrepreneur and community leader shared an interesting response by David Fisher:

– Have better ideas and bring more to the table: There are a few non-technical people that I’d follow anywhere and its because they do have consistently great vision and ideas. Show people that you can lead and followthrough. One of my good friends Tim Hwang can’t code at all (AFAIK), but I’ve seen him execute with the Awesome Foundation, ROFLcon and the Web Ecology Project. I know that if he gets a great idea, that he will hold up his end. Do things like this and you’ll have no problem finding developers and technical co-founders.

It’s true that if you’re a “tested entrepreneur” then people will want to be part of your vision, but most people aren’t their first time around. Still, I think this speaks to the value of community involvement in lieu of us having a really technical and available scene.

I don’t think it’s actually particularly easy to find co-founder engineers or engineers in general in the valley. I bet we’re going to feel this way everywhere…

Jared Franklin, product manager at Bill Me Later:

Thanks for posting the responses in “Baltimore Area Leaders Sound Off on Startup Scene.” I completely agree with those who cited the lack of support and production from our Universities in the area. I graduated last year from Loyola as an MIS major and now work for PayPal/Bill Me Later as a product manager. I would never have landed the job if I didn’t intern for Bill Me Later 20+ hours a week for 2.5 years of my time in college. School simply isn’t enough.

Our MIS major consisted of <10 graduates in the 2010 class and I'd consider it to be the most "entrepreneurial" major at the school. Our biggest class in the business school were either general business majors or finance majors. The school did not do enough (or anything) to teach students what other majors existed or what type of jobs they help you develop skills for. Additionally, the MIS majors capstone project consisted of a business plan and a non-functioning prototype of a web product. However, a portion of a semester and lack of coding skills did not help. I wish they paired us with the CS majors to develop a product together. This would have been beneficial for both the MIS majors and CS majors. I find myself in the same predicament now, one year out of college. I generate ideas (for projects outside of work) but need someone who can code. I was exicted to see Bob Blonchecks point of view stating that he thinks we have a lack of non-technical entrepreneurs. Anyway, thanks for the post. It was great.

Please feel free to post YOUR thoughts and comments!

What are YOUR thoughts about East Coast startup culture?